What Are Fixed Income Securities?

A fixed income security is a financial investment that provides periodic income to the investor. Fixed income securities are often used for retirement planning because they are a relatively safe way to receive a set amount of payments from low-risk investments.

According to Raymond James, the lower risk from the fixed income security also means lower returns. Better returns are possible through some securities that may not be as stable and could also end up paying less.

With a higher risk, investors have higher returns but also the chance of losing value in their securities. Many people choose lower risk investments for more assurance of payouts of a set amount at specific times.

Buying a bond is one way to invest in a fixed income security. Bonds are available through a corporation, a municipality or the federal government. There are also other types of bonds, such as mortgage-backed or asset-backed securities.

A bond is basically a loan to a particular entity for a certain amount of time. When the bond matures, the issuer pays money back to the person who purchased the bond, known as the bond holder. The amount paid back is based on several fixed factors, which include the time the bond is bought, the length of time before it matures, and the rate of return.

A CD or certificate of deposit is another fixed income security that is sold by a federally guaranteed institution, such as a bank or security broker. You agree to deposit your money over a certain period at a set rate.

The rates are usually higher than in regular savings accounts by committing your money to be deposited for that specific time, according to Investing in Bonds. Generally, the longer you are willing to leave your money in the deposit, the higher rate you will earn.

Investment risk impacts both the cost and the amount the security will pay you, the return on your investment. Fixed income securities differ from stocks in that you don't usually lose your initial investment if the market experiences a downturn or the corporation involved goes bankrupt.

The money is guaranteed to be protected. Federal government bonds, known as Treasury bonds, have virtually no risk.

A fixed income security is a financial investment that provides periodic income to the investor. Fixed income securities are often used for retirement planning because they are a relatively safe way to receive a set amount of payments from low-risk investments.

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